Watchdog sues SEC over FOIA access to docs on potential crypto conflict of interest

Watchdog group Empower Oversight Whistleblowers & Research (EMPOWR) has filed suit against the United States Securities and Exchange Commission to force the agency to comply with a Freedom of Information Act (FOIA) request for access to communications between former SEC officials and their former and future employers. 

EMPOWR claimed in its suit that the former SEC officials had a potential conflict of interest regarding cryptocurrency. The suit specifically mentioned former SEC Chair Jay Clayton, former enforcement division director Marc Berger and former director of corporate finance William Hinman. According to the suit:

“The requested records will shine light on whether former SEC officials had conflicts of interest when declaring whether certain cryptocurrencies constitute securities, and thus are subject to SEC regulation.”

Hinman was a partner at law firm Simpson Thacher before joining the SEC in 2017. He would return to the firm after leaving the SEC in October 2020. 

Berger became a partner at Simpson Thacher after leaving the SEC in 2021, and Clayton joined cryptocurrency hedge fund One River Asset Management in 2021. EMPOWR said:

“These events raise serious questions about potential conflicts of interest at the root of the government’s regulation of the emerging cryptocurrency market.”

Simpson Thacher was a member of the advocacy organization Enterprise Ethereum Alliance that sought to “drive the use of Enterprise Ethereum.” EMPOWR stated that Hinman reportedly received millions of dollars from the law firm during his tenure at the SEC.

Hey @SECGov, this is not a game. The law requires you to do these searches and you have known it all along.

Time for the foot-dragging and dishonesty to stop. Be serious professionals. Do the searches and produce the documents.

From our complaint, available here:… https://t.co/pocmaHE3tq pic.twitter.com/0FhKGuPo61

— Jason Foster (@JsnFostr) May 11, 2023

EMPOWR saw Hinman’s continuing ties to his old law firm as possibly a conflict since, while at the SEC, Hinman delivered the speech “Digital Asset Transactions: When Howey Met Gary (Plastic),” stating that Ether (ETH) is a commodity, after which “Ether’s value rose significantly.” Documents relating to that speech were also subject to a legal tug-of-war between the SEC and Ripple Labs in the agency’s case alleging that sales of Ripple’s XRP coin (XRP) violated U.S. securities laws.

Related: ‘Well worth the fight’ — Ripple counsel confirms Hinman docs are in their hands

The current suit is the latest in a series of legal actions dating back to EMPOWR’s original FOIA request for eight categories of record filed in August 2021. EMPOWR filed a complaint in December of that year after receiving no response from the SEC to its request. The SEC then gave “no records” responses to four of the eight categories but later admitted that those responses were erroneous and it had found 1,000 pages of records from searched emails.

After attempts to make the SEC widen its document search, EMPOWR filed a new FOIA request in December 2022. The current suit is an attempt to receive a response to that request.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?